Intred (BIT:ITD) Looks To Prolong Its Impressive Returns

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Ergo, when we looked at the ROCE trends at Intred (BIT:ITD), we liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Intred:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.21 = €8.2m ÷ (€58m - €19m) (Based on the trailing twelve months to December 2020).

So, Intred has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 3.6% earned by companies in a similar industry.

Check out our latest analysis for Intred

Historical performance is a great place to start when researching a stock so above you can see the gauge for Intred's ROCE against it's prior returns. If you're interested in investigating Intred's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

It's hard not to be impressed by Intred's returns on capital. The company has employed 548% more capital in the last five years, and the returns on that capital have remained stable at 21%. Now considering ROCE is an attractive 21%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

On a side note, Intred has done well to reduce current liabilities to 32% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Key Takeaway

Intred has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And since the stock has risen strongly over the last year, it appears the market might expect this trend to continue. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Intred does have some risks though, and we've spotted 1 warning sign for Intred that you might be interested in.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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